The U.S. auto industry employs nearly 800,000 workers and is a major employer in certain parts
of the country. International competition is fierce, with many automakers and thousands of parts
makers vying for market share. Because of the industry's importance to the U.S. economy, the
rapid rise of China's auto assembly and auto parts industries in recent years has raised concerns
among some Members of Congress.

In 2009, China overtook the United States to become both the world's largest producer of and
market for motor vehicles. In 2012, assemblers in China sold 19 million vehicles, and forecasts
project more than 30 million vehicles will be sold there in 2020. China's increasing importance
in this industry presents a unique set of opportunities and challenges for the United States. On
the one hand, China is in some respects a relatively open market; it was the fourth-largest export
market for U.S. autos and auto parts in 2012 at $7.3 billion ($5.7 billion for autos and $1.6
billion for auto parts), and has welcomed foreign direct investment by U.S.-based auto and auto
parts manufacturers. Every year since 2010, General Motors has sold more cars in China
(through exports and its joint ventures there) than in the United States.

On the other hand, China maintains a number of trade and investment barriers that affect trade
flows in autos and auto parts. Foreign automakers can produce autos in China only through
50/50 joint ventures with Chinese partners. In addition, U.S. and other foreign auto firms have
reportedly faced pressures relating to transfer of technology, export performance, and domestic
content requirements. Although the United States imports few vehicles from China, China has
become the fourth-largest source of U.S. auto parts imports, with shipments of $14.5 billion in
2012.

The Chinese government has made the development of its auto and auto parts industries,
including "new energy vehicles," a major economic priority, and has implemented a number of
industrial policies to promote and protect Chinese auto firms with the long-term goal of making
them globally competitive. As a result, auto and auto parts trade has become a source of conflict
between the United States and China, most recently in 2012, when the Obama Administration
asked the World Trade Organization (WTO) to consider whether alleged Chinese subsidies of
auto and auto parts manufacturers violate international rules.

China's demand for motor vehicles is likely to continue growing rapidly because its population
of 1.3 billion is just beginning to have the financial resources to purchase automobiles. For the
United States, this will mean many new opportunities and challenges. Unlike some other
markets, such as Korea, China's large internal demand may well shape the industry for many
years, with exporting a secondary interest. China's rising investments in U.S. parts makers such
as Nexteer and B456 Systems may help develop a U.S. technology lead in fuel-efficient, low-emission vehicles. But the prevalence of state and municipal ownership of many Chinese auto
and auto parts companies may also cause friction. Many in Congress have called on the Obama
Administration to take a tougher stand against China's industrial policies that may favor Chinese
automakers over foreign automakers.

Introduction

The U.S. auto industry is of interest to many in Congress because of its large employment,
economic impact, and geographic reach. Around the world, there are many automakers and
thousands of parts suppliers, leading to intense international competition. Through the 2009
stimulus bill |1| and financial support for General Motors, Chrysler, and their suppliers, the
recovery of the domestic auto industry has been made a national priority. The federal
government has also provided loans and grants for electric vehicle manufacturing operations, |2|
research and development support for new electric, fuel cell, and natural gas vehicles, and
federal tax credits for purchase of hybrid and electric vehicles.

In addition to steps supporting the domestic auto industry, Congress and the Office of the U.S.
Trade Representative (USTR) have taken an interest in foreign trade and investment practices
that adversely affect U.S. automakers. For example, the emergence of Japan's auto industry as a
major global competitor in the 1980s and 1990s led to frequent conflict with the United States,
as many U.S. policymakers argued that Japan's trade policies harmed U.S. domestic auto and
auto parts producers at home and abroad. |3| Trade in autos and auto parts was one of the most
contentious issues in negotiating the U.S.-South Korea free trade agreement, which went into
effect in 2012. |4|

The rapid rise of China's auto and auto parts industries in recent years has raised similar
concerns and led to questions about some of the trade practices employed by the Chinese
government. Some in Congress have called on the Obama Administration to take a tougher stand
against China's industrial policies and other measures that may be distorting trade, including by
making greater use of the World Trade Organization (WTO) dispute settlement process to
challenge Chinese policies that may violate WTO rules.

This report examines the rise of China's auto and auto parts industries, Chinese government
policies to promote these industries, trends in U.S.-China trade in autos and parts, auto-related
trade disputes, and implications for U.S.-China commercial relations.

The Chinese Motor Vehicle Industry

In the past five years, rising incomes and central government stimulus have made China into the
world's largest auto market, in terms of both production and unit sales of vehicles. |5| China's
annual output of cars and light trucks increased from less than 9 million units in 2007 to more
than 19 million in 2012, largely destined for domestic consumption. By comparison, in the
United States, just over 10 million vehicles were produced in 2012. |6|

Profile of Chinese Auto Assembly

Sales are expected to continue rising, as China's ownership rate of 58 motor vehicles per 1,000
people is half the global average of 175 per 1,000 people |7| and well below the U.S. rate of 797
per 1,000 people. A major project under way to build a network similar to the U.S. Interstate
Highway system may also support sales growth. It has been forecast that as many as 30 million
vehicles will be sold annually in China by 2020, with most of them being produced there. |8|
Chinese production capacity is expanding even faster than demand, resulting in a drop in average
vehicle prices at a time when personal income is on the rise.

The transformation of China's auto industry has been a central government goal since the 1980s,
when American Motors Corp. |9| signed the first joint venture agreement to produce Jeeps in
China. |10| At that time, there were a large number of local Chinese automakers, but the
government reasoned that its domestic manufacturers would not reach higher quality,
technology, and management standards without assistance from foreign automakers. Foreign
automakers were allowed to produce vehicles in China, but only through joint ventures in which
local partners have at least 50% control. Some of these partners are controlled by local or
provincial governments. Thus, SAIC Motor Corp. (formerly Shanghai Automotive Industry
Corp.) |11| has joint carmaking ventures with both Volkswagen AG (VW) and General Motors Co.
(GM), while GM also makes cars in China in partnership with Wuling Automobile Co. |12|

Such joint ventures between foreign companies and Chinese partners produce about 70% of new
passenger cars sold in China. |13| GM and VW are the leading non-Chinese automakers, and China
is also the biggest market (in terms of number of cars sold) in their respective global portfolios.

GM now sells more cars in China than in the United States. |14| Ford Motor Co. is a more recent
entrant, and has about 3% of the market. |15| Chrysler does not currently build cars in China but
reportedly plans Jeep production there in the near future. |16|

In addition to the joint ventures, Chinese firms such as Chery, FAW, and Dongfeng make
vehicles for sale under their own brands. Table 1 shows the largest makes of vehicles--whether
built in China or imported--by unit sales in 2012, including vehicles made in joint ventures. |17|

China became a net exporter of vehicles in 2005, when it sold more than 172,000 units abroad. It
retained that status, though, for only four years; since 2009, it has again been a net importer. In
2011, as shown in Figure 1, it exported nearly 850,000 units, of which 56% were passenger cars
and 44% commercial vehicles. |18| About 70% of the vehicle exports are manufactured by domestic
Chinese companies such as Geely and Chery, with the remainder by foreign-Chinese joint
ventures. The main destinations for these vehicles are developing markets in South America,
Africa, and the Middle East. Chinese vehicle exports accounted for about 4.5% of total output in
2011, |19| a far smaller share than in some other auto-producing nations. |20|

The only Chinese-made vehicles now exported to the United States are small trucks and off-road
vans such as the Wuling Minimax. |21| Honda's Chinese-made FIT subcompact is exported to
Canada, but is not sold in the United States. |22| While there have been reports of plans to build
passenger cars in China for export to the United States, none of these plans has yet come to
fruition. |23|

As also shown in Figure 1, Chinese vehicle imports have risen, too, from just under 228,000
units in 2006 to over a million in 2011; in the latter year, 58% of imports were sport utility
vehicles (SUVs). |24| Most of the imported vehicles are in the luxury segment. |25| The major
countries of origin were Germany (28% of the Chinese import market), Japan (24%), United
States (12%), United Kingdom (6%), and South Korea (4%). |26| Among luxury brands, BMW and
Mercedes-Benz top the list. In addition to having a greater range of luxury vehicles in their
fleets, European makers do well because the substantial Chinese consumption tax on cars with
large engines falls more heavily on American-made vehicles. |27|

The United States exported many more vehicles to China in 2011 than China exported to the
United States. In both 2011 and 2012, China was fourth-largest export market for U.S. vehicles,
behind Canada, Mexico, and Germany. |28|

The Chinese Auto Parts Sector

With the rapid growth of the Chinese auto sector has come rising demand for the thousands of
auto parts that are combined into final product motor vehicles. The Chinese parts industry is
fragmented and comprises both Chinese and foreign parts makers, including many U.S.-based
companies.

In 2000, the majority of indigenous Chinese [auto parts] suppliers were uncompetitive
and produced low quality products. International automakers helped spur foreign supplier
investment in China over the past decade which made those rising exports possible by
pressuring their international suppliers to locate production there. The automakers did so
in an effort to hold down costs and maintain their own competitiveness both in China and
in markets like the United States. Thus, many U.S. and other international auto parts
companies opened plants and expanded their Chinese production in order to supply the
international automakers' Chinese joint ventures, and to use their operations in China to
export to the global automotive OE [original equipment] and aftermarket, including the
United States. In the process, some have also become suppliers to domestic Chinese
automakers, which have [sic] helped improve the product quality of these firms. |29|

Chinese Exports and Imports

China's exports of auto parts grew from $7.4 billion in 2002 to more than $69 billion in 2011, a
nine-fold increase. |30| According to U.S. government data, about 25% of China's auto parts
production is exported, including to the United States, where more than $14 billion in parts from
China were imported in 2012, a 60% increase since 2008. |31| As discussed later in this report,
some U.S. producers and the U.S. government have alleged that many auto parts exports are
subsidized in ways that violate WTO rules.

The U.S. parts market comprises both parts destined for assembly plants and aftermarket sales,
with sales to automakers the larger of the two markets. According to the U.S. Department of
Commerce, about two-thirds of parts sold domestically are sourced from suppliers located in the
United States. |32| Customs import data do not break down the destination of auto parts, so it is not
known how many Chinese parts flow to the automakers and how many to the aftermarket. Some
analysts believe that most of the imports are for aftermarket use. |33| One analysis, however,
searched the U.S. government's Automated Manifest System (AMS) |34| and found that in 2010
and 2011 the Detroit 3 imported not only relatively simple auto parts from China, such as knobs,
lights, rearview mirrors, and exhaust manifolds, but also more sophisticated products such as
transmission electro-hydraulic control modules and control resistors. |35|

It is possible that some Chinese parts might be incorporated into more complex components,
such as transmissions, at U.S., Mexican, or Canadian plants. However, no Chinese-made engines
and only a single model of Chinese-made transmission, the manual transmission offered on the
Ford Mustang, were installed on cars built at U.S. assembly plants in 2012. |36|

China's most recent Five Year Plan, discussed later in this report, emphasizes production of "new
energy vehicles," such as electric and fuel cell cars. Toward this end, the plan identifies electric
vehicle batteries, electric motors, sensors, and electronic fuel cells as particularly important.
Should China develop exports of such products, they would compete directly with more
sophisticated parts manufacturing in other industrialized countries.

China is also a major importer of auto parts. In 2010, China imported about $27 billion in
transmissions, engine parts, car bodies, and accessories and electronics. These goods were
sourced primarily from Japan, Germany, South Korea, France, and the United States. |37| U.S. parts
plants exported about $1.6 billion in auto parts to China in 2012. |38|

The Economic Policy Institute, a Washington think tank close to the U.S. labor movement, has
estimated that there were upwards of 10,000 registered auto parts companies in 2008 in China
(more than double the number in 2002) and another 15,000 nonregistered companies that had
some portion of their business in auto parts. |39| By contrast, there are about 5,600 U.S. parts
suppliers operating in the United States. |40| The Chinese government does not have the same
strictures on investment in the auto parts sector as in auto assembly, so foreign auto parts
companies can own more than 50% of a Chinese parts maker. Many U.S.-based parts producers
have established operations there. Seven of China's 10 largest parts manufacturers are foreign-based, according to an analysis by a Washington consulting firm. |41|

Among Tier 1 auto suppliers--the companies that furnish entire assemblies, such as braking
systems and seating systems--U.S.-based companies Delphi, Visteon, Johnson Controls, Lear,
Arvin Meritor, and TRW manufacture in China, along with other leading producers such as
Bosch, Denso, Magna, and Yazaki. Michigan-based Visteon, for example, has 23 manufacturing,
technical, and customer centers in China to provide vehicle climate equipment, electronics, and
interiors, and its Asia-Pacific regional operations are based in Shanghai. (Visteon has 11 such
centers in North America.) TRW has forecast that China could become its largest single market
by 2020. |42|

Chinese Acquisitions of U.S. Auto Parts Makers

China's auto parts sector is also being bolstered through the acquisition of assets of foreign auto
parts makers. Through such purchases, Chinese parts makers can target technology and product
innovations to enhance their Chinese operations. In addition, acquisitions may help the Chinese
companies develop the expertise to shift from supplying low-margin parts to more profitable
activities, such as integrating parts into component systems.

Among the Chinese investments in recent years were the following:

Beijing West Industries (BWI), a joint venture of two Chinese state-owned enterprises,
bought the suspension and brake units of Delphi Corp. in 2009 for about $100 million as
Delphi was emerging from bankruptcy and shedding assets. |43| BWI operates former
Delphi plants in Ohio and Michigan that make components for Chevrolet, Audi, and
other automakers.

Pacific Century Motors (PCM), a joint venture between the Beijing municipal
government and another Chinese partner, bought Nexteer Automotive from GM in
2010. |44| Nexteer's plant in Saginaw, MI, builds electronic steering assemblies for GM
pickups and SUVs. Nexteer has 22 manufacturing facilities, 6 engineering facilities, and
14 customer support centers in the United States and other countries. The reported $450
million sale is the largest Chinese acquisition of a U.S. auto parts company. |45|

The Chinese conglomerate Wanxiang outbid Johnson Controls and several other bidders
to win control of lithium-ion battery maker A123 Systems, |46| which filed for bankruptcy
in 2012. The Chinese company's $257 million bid enabled it to take control of the
commercial parts of A123 Systems after the Committee on Foreign Investment in the
United States (CFIUS) approved. |47| The deal initially raised questions in Congress
because A123 Systems was awarded $249 million in stimulus funding in 2009. |48| At the
time of the transaction, Wanxiang already had bought other U.S. auto parts companies
and had over 3,000 U.S. employees.

The Auto Industry in China's Five-Year Plan Process

The Chinese government has an ambitious plan to transform its auto manufacturing sector,
which was designated a national "pillar industry" in China's Seventh Five-Year Plan in 1986. |49| In
1994, the "Formal Policy on Development of Automotive Industry" was issued by the State
Council to further advance the industry, while imposing tariffs to restrict imports. Stewart and
Stewart, a Washington law firm that often represents U.S. manufacturers in trade cases, claims
that the 11th Five-Year Plan (2006-2010) targeted specific components for priority support and
provided an estimated RMB 4.7 billion (about $760 million) to support research and
development for energy-efficient vehicles, allegedly through reduced corporate income tax rates,
subsidized export credits, and concessional financing by state-owned banks. In 2009, the
Chinese government's "Automotive Industry Restructuring and Revitalization Plan" sought to
boost domestic vehicle consumption and set as a target the expansion of indigenous vehicle and
parts production, especially of hybrid and electric cars. |50|

In its 12th Five-Year Plan (2011-2015), China laid out three major steps |51| to further build up the
auto assembly and parts industry:

consolidation of the currently fragmented industry, which would reduce the number of
auto making and auto parts firms and, in so doing, could create economies of scale,
reduce manufacturing costs, and raise the industry's international competitiveness;

emphasis on bolstering research and development for key auto parts, which could
enhance Chinese-owned firms' innovation and productivity and help raise the quality of
Chinese-made vehicles and parts; and

incentives for production and sale of energy-saving vehicles, which could help reduce
dependence on imported oil, cut emissions, and usher in a significant rise in
technological knowledge that would benefit the indigenous vehicle sector.

General Motors and Electric Vehicle Technology in China

The Chinese government's priorities for advancing its new-energy vehicle program were
evident in its recent discussions with GM. Chinese consumers bought over a million imported
vehicles in 201 1, most of them luxury cars. General Motors would like to sell its Volt
extended range electric vehicle there, exported from the United States. In 2011, the Chinese
government reportedly told GM that to be able to sell that vehicle in China and also take
advantage of Chinese tax incentives, GM would have to provide details of its unique battery
technology, electronics, and drivetrain. GM's Chairman and CEO, Daniel Akerson, reportedly
declined to divulge such proprietary information, thereby preventing Chinese consumers from
using a $19,000 subsidy to purchase the vehicle, likely crimping sales. |52| (The Volt sells for
upwards of $40,000 in the United States.) While GM also announced in 2011 that it would
work with its partner SAIC Motor to develop a "new electric vehicle architecture" in China, |53|
these plans reportedly did not work out and in May 2013, the head of GM China said the
companies would go their separate ways. Differing technology platforms and suppliers were
reportedly behind the change. |54|

"New-energy automobiles" is one of the seven "strategic and emerging" industries (SEIs)
emphasized in the 12th Five-Year Plan. Together, the seven SEIs, which represented 3% of GDP
in 2011, are forecast to comprise 8% of GDP by 2015 and 15% by 2020. |55| The Chinese
government aims to achieve these goals through the use of "support by treasury, tax and
financial policies," including financing, credit support and central government investment,
building on the support provided in the 11th Five-Year Plan. |56| In addition, some Chinese
provinces and cities have their own incentives and support programs for the auto industry. |57|

Several parts of the 12th Five-Year Plan have generated charges that China is violating some of
its WTO obligations in its support for the industry. Parts of its energy-saving vehicle program
are alleged to violate the WTO with new local content, technology transfer, and export
requirements. |58|

As discussed later in this report, the Obama Administration has notified China that it will take
these and other subsidy issues to the WTO if the Chinese government does not modify its
policies.

Global Parts Competition Increases

A typical automobile is made from upwards of 15,000 parts, from engines and transmissions
down to tiny electronic sensors, dashboard components, tires, and windshield wiper motors.
While vehicle manufacturers at one time made nearly all these parts, major automakers now buy
from parts suppliers as much as 70% of the value added in production of motor vehicles. A large
network of independent producers is responsible for designing and producing these parts used by
the automakers and integrating parts into more complex assemblies, such as a complete
dashboard or steering mechanism.

There are several types of parts manufacturers. Tier 1 manufacturers make components and
systems for new vehicles. They often use parts furnished by Tier 2 and 3 suppliers, smaller
companies that may focus on particular types of products, such as gaskets or valves. While Tier
2 and 3 suppliers sometimes sell directly to automakers, in many cases their main customers are
the repair shops and auto supply stores that make up the aftermarket. Tier 2 and 3 suppliers often
sell into the new vehicle market through the Tier 1 suppliers, which use their parts in larger
assemblies, rather than through direct relationships with automakers. Many Tier 1 manufacturers
also build for the aftermarket. Of the total U.S. parts market, an estimated 70% of the value
originates with Tier 1 suppliers.

Around the world, a change in manufacturing and design processes is favoring a consolidation
among vehicle suppliers. Many vehicle manufacturers are moving toward "global platforms,"
meaning that they will use a small number of chassis, engines, and transmissions as the basis for
building many different cars and truck models around the world. With this emphasis, a car might
have similar parts, whether it is built in North America, Europe, or Asia. Building on global
platforms is expected to lower engineering costs and simplify the variety of parts that a
manufacturer deals with. Ford, for example, plans to move from 15 vehicle platforms to about
five in the future. |59|

The shift to global platforms is driving consolidation among suppliers, for two reasons. Auto
manufacturers will want to use the same components on a given platform regardless of where the
vehicle is assembled, so they prefer to deal with parts makers that can supply them worldwide
rather than only in certain locations. Also, the automakers commonly ask the larger Tier 1
suppliers to furnish entire systems, such as seating or braking systems, requiring the suppliers to
maintain sophisticated design and engineering operations and to handle procurement of the
simpler parts used in their products.

The implications for the use of Chinese auto parts in the new platforms hinge on the ability of
Chinese auto parts companies to expand their horizons in two ways. First, Chinese parts makers
are seeking to increase the quality of their production so it is attractive to global automakers.
Second, they likely will seek to become not just makers of individual parts, but also systems
integrators, so they can make the complex assemblies that automakers now expect their suppliers
to provide. Ultimately, the Chinese government is seeking to develop vehicles that will be built
in China and exported more widely to other markets, as the Japanese and Koreans did earlier.
Volkswagen already produces parts in China with its partner SAIC Motor, and exports those
Chinese wheel hub assemblies to other countries. |60| The combination of automakers building only
a few platforms and rising Chinese auto and auto parts quality and sophistication could coincide
to spur exports of more parts and eventually vehicles from China.

The North American Tier 1 supplier base has changed over the past decade, with more foreign-owned companies rising into the top ranks of parts manufacturers. The Appendix of this report
shows that in 1999, three of the top 10 U.S. suppliers were foreign-based companies with U.S.
production facilities (Magna, Bosch, and Denso). By 2011, five of the top 10 were foreign-based
suppliers, including the three cited above as well as Continental and Faurecia. It has been
estimated that 800 to 1,000 suppliers built plants in the United States in the past 20 years; many
are Asian and European suppliers that have followed automakers from their home countries to
the United States, but also are interested in selling parts to the Detroit 3. A U.S. government
report noted that "suppliers in North America all face competition, historically high material
costs, and demanding customers, although the foreign suppliers [with U.S. plants] face fewer
legacy costs and so tend to operate more efficiently than their U.S. counterparts." |61|

The other side of industry globalization is the growth of U.S. firms abroad. As foreign-based
parts makers were expanding in the United States, many of the U.S.-based parts makers were
setting up operations in growing Asian markets, especially China, to serve their Detroit 3
customers that were building cars there. In some cases, according to a Department of Commerce
report, they did so because "the Detroit 3 also advocated that U.S.-based suppliers move
production to lower cost countries or risk losing future contracts." |62| General Motors is the largest
non-Chinese automaker in China and obtains about a quarter of its annual revenues there, |63| so
supplying GM's manufacturing in China from a local base became an economic imperative for
many of the Tier 1 suppliers. But the auto parts makers also saw the opportunities arising from
growing Chinese auto production.

Data on exports and imports show that the U.S. trade pattern in auto parts is shifting, with
imports from traditional trading partners (such as Canada and Japan) leveling out while the
growth in parts imports is being sourced increasingly from Mexico, China, and Germany, as
shown in Table 2. While the United States' overall value of imported parts has increased by 96%
in the past decade, import growth from Mexico, China, and Germany exceeds that average, with
Chinese imports growing by more than 700%, albeit from a very small base in 2001.

Chinese auto parts are also exported to Mexico, where they are ultimately used in autos made
there or included in parts exported to the United States or elsewhere. China accounted for almost
12% of Mexican parts imports in 2010, up from less than 1% in 2000. |64|

U.S.-made parts exports to Mexico rose 103% in the past decade, double the rise in U.S. parts
exports overall. The North American Free trade Agreement (NAFTA), which created a fully
integrated market for autos and parts made in the United States, Canada, and Mexico, has led to
increasing investment by foreign automakers in Mexico. |65| U.S. exports to Canada and Germany
also rose, but from a smaller base in 2001. U.S. parts exports to China rose by more than 400%
(also from a small base), thus making China the fastest-growing market for U.S. parts exports.

Table 2. U. S. Auto Parts: Exports and ImportsSelected Years and Countries, 2001-2012, in Billions of U.S. Dollars

Autos and auto parts have been the subject of a number of trade disputes between the United
States and China. All of these disputes have arisen since December 2001, when China was
admitted to the WTO. While China has repealed overt pre-WTO regulations favoring its
domestic industry over imports, several parts of the 12th Five-Year Plan have generated charges
that China is violating some of its WTO obligations in its support for the industry.

Trade concerns have been exacerbated by the challenges facing the U.S. vehicle parts sector.
U.S. parts makers were severely affected by the 2007-2009 recession and the steep decline in
domestic auto production, as well as by import competition. Parts employment fell in every year
from 2001 to 2009, as many companies filed for bankruptcy. While the industry has added
100,000 jobs since its low point of 386,000 in July 2009, the sector provides roughly 350,000
fewer jobs than it did at the start of this century. |66| Meanwhile, parts imports have been rising
throughout the past decade, from about 21% of the total U.S. parts market to nearly a third in
2010. |67|

China's WTO Accession

Liberalization of China's auto trade was a major U.S. priority during negotiations over China's
accession to the WTO during the late 1990s, especially in regard to its high tariffs, nontariff
barriers (such as export performance and domestic content requirements), import substitution
policies, license requirements, and trading rights restrictions. |68|

Under the terms of its WTO accession agreement, China agreed to lower tariffs on autos from
80%-100% to 25% by July 2006, while tariffs on auto parts would fall from an average of 23%
to an average of 9.5% by the same date. |69| China also agreed to eliminate a number of nontariff
barriers, such as restrictions on trading rights and quotas, and it specifically committed not to
condition the issuance of import licenses on performance requirements of any kind, such as local
content, export performance, offsets, technology transfer, or research and development, or on
whether competing domestic suppliers exist. |70|

China initially maintained tariff rate quotas |71| on autos and auto parts, which were gradually
phased out. One year after China's WTO accession in December 2001, USTR stated that from
the outset, China's quota system was beset with problems due to a delay in the implementation of
regulations and other problems that "seemed to reflect protectionist policies," including
consumption tax regulations that taxed imported automobiles at a higher rate than domestic
vehicles, and the development of unique standards for autos, despite the existence of
international standards. The U.S.-China Business Council noted in its 2011 member survey that
autos were among the notable industries affected by investment restrictions (along with
agriculture, chemicals, energy, express delivery, insurance, securities, and
telecommunications). |72|

Export performance requirements facing foreign investors in the automotive sector have also
been irritants. U.S.-based Cooper Tire & Rubber, for example, reportedly won approval for
investment in China after agreeing to export 100% of its tires for five years. Similarly, Honda
has reportedly been allowed to own 65% of an assembly plant in Guangzhou because it agreed to
export all of that plant's production. |73| Such requirements can exacerbate trade frictions, as the
companies may have incentives to substitute Chinese exports for U.S. production in order to
meet the conditions of their investments in China.

The 2005 U.S. WTO Case Against China on Auto Parts

A 2005 report by the American Chamber of Commerce in China (AmCham) stated that China
had met or improved its compliance of its WTO obligations in several important auto policy
areas, including tariff reduction, quota elimination, distribution, and auto financing. However,
the report went on to state that several problems remained. For example, it stated that intellectual
property violations (e.g., counterfeit auto parts and design patent and trademark infringement)
were common and continued to grow. The report further charged that a 2005 regulation,
"Measures on the Management of Parts Import Constituting an Entire Automobile," attempted to
discourage firms in China from importing auto parts. The measure required auto manufacturers
in China to pay complete built-up vehicle tariffs (25%) on imported parts used to assemble
vehicles in China if the assembled vehicles included a certain level (threshold) of imported parts.
The Chinese tariff on auto parts at the time was 10%. |74| Manufacturers in China were further
affected by requirements by the government to maintain and submit records of their auto parts
imports.

In March 2006, the United States (along with the European Union and Canada) initiated a WTO
dispute settlement case against these Chinese auto parts policies. China argued that its measures
were intended to prevent firms from circumventing tariffs on fully assembled vehicles by
importing parts and assembling them into complete vehicles in China. The United States argued
that the measures attempted to impose local content requirements on auto manufacturers by
assessing additional charges on imported auto parts used in the manufacture of vehicles for sale
in China. According to the U.S. WTO complaint,

China's regulations governing the importation of auto parts appear to penalize
manufacturers for using imported auto parts in the manufacture of vehicles for sale in
China. Although China bound its tariffs for auto parts at rates significantly lower than its
tariff bindings for complete vehicles, we understand that China assesses a charge on
imported auto parts equal to the tariff on complete vehicles, if the imported parts are
incorporated in a vehicle that contains imported parts in excess of specified thresholds.
To the extent that the charge is applied when a vehicle is manufactured within China, it
would appear to constitute a tax on imported auto parts not imposed on like domestic
auto parts. The tax also appears to be applied in a manner so as to afford protection to
domestic products. |75|

The United States further contended that the policy not only discouraged auto firms in China
from importing auto parts, but also put significant pressure on foreign auto parts producers to
relocate manufacturing facilities to China. |76|

In July 2008, a WTO Panel determined that China's regulations on auto parts were inconsistent
with its WTO obligations. This ruling was largely upheld by a WTO Appellate Body in
December 2008. This was the first time that the WTO found a Chinese measure to be
inconsistent with WTO rules. According to USTR, China repealed the measures in September
2009. |77|

After the WTO concluded the case, the New York Times cited auto industry comments indicating
that automakers found little to value in the settlement:

But the Chinese action comes after lengthy negotiations during which automakers have
moved production to China on a very large scale anyway. Foreign automakers with
assembly plants in China have largely stopped using imported auto parts, partly to avoid
paying the steep taxes on these parts and partly because international auto parts
manufacturers have moved production to China.

General Motors, the automaker that accounts for three-quarters of American-brand
vehicle sales in China, now manufactures or purchases in China so many of its auto parts
for vehicles sold in China that the government decision to comply with the W.T.O. ruling
makes little difference, said Kevin E. Wale, the president and managing director of G.M.
China. |78|

U.S. Safeguard Measures on Chinese Tires

Under the provisions of China's WTO accession agreement, China agreed that other WTO
members would be able to maintain a China-specific measure, allowing them to restrict imported
products from China in instances when imports surged and harmed, or threatened to harm,
domestic industries. Under this provision, the United States brought a case against Chinese tire
imports in 2009. (This China-specific safeguard measure expires in December 2013.)

On April 24, 2009, the U.S. International Trade Commission (USITC) initiated an investigation |79|
of certain types of light vehicle passenger tires, based on a petition filed by the United
Steelworkers International Union (USW), which contended that U.S. imports of passenger
vehicle and light truck tires from China caused or threatened to cause market disruption to U.S.
domestic producers of like or directly competitive products. In June 2009, the USITC announced
that it had determined such imports did in fact cause or threaten to cause market disruption, and
recommended the imposition of additional tariffs over three years (55% in the first year, 45% in
the second, and 35% in the third) and to provide expedited consideration of Trade Adjustment
Assistance for firms and/or workers who are affected by such imports.

The USW argued that the "extraordinary increase in imports" of tires from China had hurt tire
producers in the United States, contributing to the loss of 5,100 U.S. tire-related jobs from
20042008, and warned that 3,000 more jobs would be lost in 2009. Producers of tires in the
United States, many of which have joint-venture operations in China, did not express support for
the safeguard case, and some actively opposed it. Some industry representatives argued that a
large share of U.S. tire imports from China were low-end products, and that the USITC's
proposed increase in tariffs was excessive, would hurt U.S. consumers, and would do little to
boost employment in the U.S. tire industry. On September 11, 2009, President Obama
announced that he would impose additional tariffs on certain Chinese tires for three years (35%
in the first year, 30% in the second year, and 25% in the final year); these levels were less than
the USITC's recommendations. The tariffs on tires expired in 2012. |80|

The safeguard tariffs seem to have shifted the source of imports from China to other countries.
During the period of the safeguards, total U.S. imports of the types of tires covered by those
tariffs rose from 125 million units in 2009 to 158.3 million in 2012, but imports of Chinese tires
covered by the safeguards fell from 45.5 million units in 2009 to 30.2 million in 2011. When the
tariffs were removed in 2012, tire imports from China rose to 38.9 million units, resuming their
earlier growth. During the time the safeguard tariffs for Chinese tires were in effect, imports of
the same kinds of tires from Korea, Canada, Thailand, Mexico, Indonesia, Taiwan, and Chile
rose in volume. China's share of these types of tires sold in the United States fell from 36% in
2009 to 20% in 2011, before rising to 25% in 2012, after the tariffs came off. |81|

China called the imposition of increased U.S. tariffs on Chinese tires protectionist, and
responded by initiating a WTO trade dispute settlement case against the United States on
September 14, 2009. The WTO ruled that U.S. actions did not violate U.S. WTO commitments.

On November 11, 2009, shortly after imposition of the U.S. safeguard measures on tires, China
launched antidumping and countervailing cases against U.S. autos (as well as poultry). In
December 2011, China imposed anti-dumping duties (ranging from 2.0% to 21.5%) and
countervailing duties (ranging from 6.2% to 12.9%) on American-produced cars and SUVs over
two years. The United States charged that the action was unjustified because Chinese authorities
did not objectively examine the evidence as to whether certain U.S. policies to support the U.S.
auto industry caused injury to China's domestic industries. On July 5, 2012, the United States
initiated a WTO dispute settlement case against China, calling the imposition of duties on
American-made automobiles "yet another abuse of trade remedies by China." A WTO dispute
panel was named in February 2013, but no action has been taken on the U.S. complaint.

Rare Earth Elements

China has increasingly used a number of export restrictions (including export taxes, quotas,
licenses, and prohibitions) on a wide range of raw materials, |82| such as rare earth minerals used in
automaking. |83| China produces an estimated 97% of all rare earths, a unique group of 17 metal
elements on the periodic table that exhibit a range of special properties, such as magnetism,
luminescence, and strength. Rare earths are important in a number of automotive uses, including
the manufacture of permanent magnets for hybrid and electric vehicle motors. |84|

In recent years, the Chinese government has implemented policies to tighten its control over the
production and export of rare earths. Such restrictions include quotas, export taxes, production
limits, and minimum export prices. Such policies have sharply raised prices for rare earth users,
especially non-Chinese firms. In 2010, China placed an embargo on the export of rare earths and
then added export duties. These restraints affected especially Toyota, which, at the time,
produced more hybrid vehicles (such as the Prius) than any other automaker. |85| It has been
asserted that China's rare earth export policies are leading some rare earth users, including some
automakers, to move operations to China, and subsequently to transfer technology to Chinese
firms. |86| China denies that its rare earth policies are discriminatory or protectionist, and claims
they are intended to address environmental concerns in China and to better manage and conserve
limited resources. |87|

On March 13, 2012, the United States, Japan, and the European Union jointly initiated a WTO
dispute settlement case against China's restrictive policies on rare earths (as well as on tungsten
and molybdenum). This case was brought shortly after the United States prevailed in a similar
WTO case brought against China over its export restrictions on nine raw materials. |88| The WTO
has not ruled on the rare earths case.

The U.S. WTO Case Against China on Auto and Auto Parts Subsidies

Some Members of Congress have expressed "serious concern" about China's trade practices in
the auto parts sector. A letter signed by 188 Members of Congress in March 2012 stated

Seventy-five percent of the jobs in the automotive sector are in auto parts, and these jobs
are at risk in every state in the nation. China has virtually closed its market to our auto
parts exports and continues to take actions to further limit access. Given its importance,
the Administration's vigilance in addressing China's harmful policies now, while we can
still change this one-way street in trade, is essential. |89|

The letter urged the Administration's Interagency Trade Enforcement Center (created in
February 2012) to "address Chinese predatory policies in auto parts" as one of its initial
priorities. |90|

On September 17, 2012, the United States announced that it would initiate a WTO dispute
settlement case against China's export subsidies to auto and auto parts manufacturers in China. |91|
The United States has charged that China maintains an auto and auto parts "export base" subsidy
program estimated to have totaled at least $1 billion from 2009-2011. The United States argues
that the program constitutes an export subsidy prohibited under WTO rules because 12 Chinese
municipalities have been designated as auto and auto parts export centers and receive
government funding on the basis of their export performance. Such subsidies allegedly include
grants, tax preferences, and reduced interest rates. |92| A 2012 report by the Economic Policy
Institute contended that Chinese subsidies to the auto parts sector are more extensive, estimating
that the sector received $27.5 billion in subsidies from 2001 to 2011, and has been promised
another $10.9 billion in subsidies through 2020. |93|

The United States and China held consultations in November 2012, but the case is unresolved at
this time.

New Energy Vehicles

U.S. officials have raised a number of concerns over Chinese investment restrictions related to
new energy vehicles (NEVs), such as hybrid and battery electric vehicles. A Chinese
government list of 400 cars eligible for the energy-saving vehicles program is reportedly
restricted to vehicles produced in China, and a 2011 sales tax exemption to boost sales of such
cars is similarly limited. |94| USTR has also alleged that joint venture agreements with foreign auto
companies require a transfer of energy-saving vehicle technology, and that GM, Ford, Daimler,
and other non-Chinese companies have agreed under pressure to share powertrain and vehicle
battery technology with their Chinese joint venture partners. |95|

Chinese government draft regulations reportedly specify that automakers that intend to
manufacture electric vehicles in China must demonstrate a "mastery" level of proficiency in key
parts such as electric vehicle batteries, motors, or control systems before receiving a license to
produce and sell electric vehicles. In addition, according to reports on current drafts, the Chinese
entity that manufacturers the vehicle, either a domestic manufacturer or joint venture operation,
must demonstrate clear ownership of intellectual property rights to the technologies that enable
the "mastery." |96| U.S. industry representatives contended that such policies would force U.S.
companies to transfer their intellectual property in order to participate in China's NEV market.
China has announced plans to manufacture 1 million NEVs by 2015 and 5 million annually by
2020. |97|

confirmed that "it does not and will not maintain measures that mandate the transfer of
technology";

clarified that "mastery of core technology" does not require technology transfer for
NEVs;

confirmed that the establishment of brands is a corporate decision and that the Chinese
government does not and will not impose any requirements for foreign-invested
companies to establish domestic brands in China;

confirmed that foreign-invested enterprises are eligible on an equal basis for subsidies or
other preferential policies for NEVs with Chinese enterprises, and that these subsidies
and preference programs will be implemented in a manner consistent with WTO rules;
and that China affirmed that as it develops possible future NEV support programs, the
views of all stakeholders will be considered, including the comments and opinions of the
United States.

However, these pledges have not alleviated the concerns. In 2012, USTR's National Trade
Estimate Report on Foreign Trade Barriers continued to cite industry concerns over China's
policies regarding NEVs.

Conclusion

Ten years ago, the Chinese auto industry was in its infancy, with a very low level of production
and sales, few imports or exports, and vehicles whose quality was not up to par with cars and
trucks produced in countries with larger and more sophisticated auto industries. The recession
that hit the United States, Japan, and Europe did not affect China's economy so severely. As
vehicle production and sales lagged in Europe, North America, and Japan, they expanded
dramatically in China, more than doubling from 2009 to 2012. No other nation's auto industry
has seen such robust growth in the past decade.

China's growing middle class increasingly values car and truck ownership and, with a population
of more than 1.3 billion, there is room for significant expansion of the Chinese auto market even
after its recent growth spurt. China has not excluded foreign automakers from establishing a
presence there, but they must be minority or 50/50 partners with Chinese firms, many of which
are owned by provincial and municipal governments. Parts makers, on the other hand, are
permitted to own a majority share of operations in China. It appears clear from China's Five-Year Plans that building up the size and quality of the auto assembly and auto parts industries is
a very high national priority. Moreover, China's long-term plan--its feasibility as yet
untested--is to leapfrog over gasoline-powered internal combustion engine technology into new
energy vehicles, such as electric and fuel-cell-powered cars.

Nearly all major foreign automakers are participating in the Chinese market. The Chinese
government welcomes their role in expanding its domestic industry. Similarly, the Chinese
embrace investments by foreign parts makers, which build parts there to service the automakers
from their home countries. The Chinese government's plan to consolidate auto and parts makers
could in the future result in greater competition for U.S., European, and Japanese firms, which
now have a decided edge over the fragmented Chinese domestic industry.

However, Chinese state intervention in the auto and auto parts industries could limit the benefits
for non-Chinese manufacturers relative to what would occur under more open markets and trade.
When China joined the WTO in 2001, it appeared to signal that it was on a path toward
accelerating its transition to a market economy. However, USTR has noted that since 2006, there
has been a "troubling trend in China toward intensified state intervention," and that China seems
to be "embracing state capitalism more strongly." |98| At a November 2011 WTO review of China's
WTO compliance, the U.S. representative stated that the auto sector was one sector that the U.S.
highlighted as having been particularly plagued by government intervention.

In addition to the commercial opportunities presented by the Chinese market, there have also
been growing pains in the U.S.-China motor vehicle trade relationship. A half-dozen trade
disputes have developed in the past 12 years, many resulting in WTO rulings and changes in
Chinese laws and regulations affecting the motor vehicle industry.

When Japanese auto companies began to export extensively to the United States in the 1980s and
1990s, many in Congress argued that Japanese auto policies were unfair, and legislation was
introduced to limit imports of Japanese cars. This pressure led Japanese auto firms to restrain
auto exports to the United States and to build U.S. auto plants. So far, China is exporting auto
parts and not automobiles to the United States. Growing Chinese investment in the U.S. auto and
auto parts industry could alleviate concerns over increased U.S. imports of automotive products
from China as long as such commercial activity is not seen as unfair under U.S. trade laws or
WTO rules.

A key factor in the growth of the Chinese auto industry will be how well it can generate and
sustain its own innovations, which regularly mark the growth of the auto industry everywhere in
the world. Consolidation without innovation and home-grown technology applications may leave
the indigenous Chinese auto and parts makers reliant on foreign joint ventures.

[Source: By Bill Canis and Wayne M. Morrison, Congressional Research Service, R43071, Washington, 13May13. Bill Canis is a Specialist in Industrial Organization and Business and Wayne M. Morrison is a Specialist in Asian Trade and Finance]

Appendix. Largest North American Auto Parts Suppliers

Table A-1. 10 Largest North American Auto Parts Suppliers, 1999 vs. 2011Company, Location, and Revenue from Sales to North American Assembly Plants

Company/U.S. Base

1999 OEM Revenue

Company/U.S. Base

2011 OEM Revenue

Delphi Automotive
Systems
Troy, MI

$22.4 billion

Magna
InternationalAurora, Ontario

$14.7 billion

Visteon Automotive
Systems
Dearborn, MI

$15.0

Johnson Controls
Plymouth, MI

$7.9

Lear Corp.
Southfield, MI

$8.1

Continental
Automotive SystemsAuburn Hills, MI

$5.8

Dana Corp,
Toledo, OH

$7.8

Robert BoschFarmington Hills, MI

$5.6

Johnson Controls
Plymouth, MI

$6.9

Denso International
AmericaSouthfield, MI

$5.5

Magna
InternationalAurora, Ontario

$5.8

Delphi Automotive
Systems
Troy, MI

$5.1

Robert BoschFarmington Hills, MI

$5.1

Lear Corp.
Southfield, MI

$5.0

TRW, Inc.
Cleveland, OH

$4.7

FaureciaAuburn Hills, MI

$4.7

Denso International AmericaSouthfield, MI

$3.4

TRW Automotive
Livonia, MI

$4.6

Eaton Corp.
Cleveland, OH

$2.9

Cummins
Columbus, IN

$4.1

Source:Automotive News, "Top 150 OEM Parts Suppliers to North America," 1999, and "Top
100 suppliers to North America, 201 1."
Notes: The companies shown are the largest Tier 1 suppliers; revenues shown are based on each
company's sales of original equipment parts. Companies shown in bold type had their
headquarters outside the United States.

2. The Advanced Technology Vehicles Manufacturing program (ATVM) at the Department of Energy was
established in 2007 (P.L. 110-140), authorizing up to $25 billion in loans to support development of more fuel-efficient vehicles. [Back]

3. Many Members of Congress continue to express concern over purportedly discriminatory Japanese
policies on U.S. autos, and some have cited such policies in expressing their opposition to Japan joining the Trans-Pacific Partnership (TPP). See CRS Report R42676, Japan's Possible Entry Into the Trans-Pacific Partnership and
Its Implications, by William H. Cooper and Mark E. Manyin. [Back]

14. GM and its joint venture partners sold 2.8 million vehicles in China in 2012; GM sold 2.6 million
vehicles in the United States (including imports). Source: General Motors 2012 Annual Report. [Back]

23. The Chinese automaker BYD announced in 2008 that it would sell an electric vehicle in the United States
by 2010, but it failed to do so. GM reportedly planned in 2009 to build a small car in China for export to the United
States, but during its restructuring and bankruptcy, it decided to build that car (now known as the Sonic) at a
Michigan plant. In 2006, investor Malcolm Bricklin sought to build cars with Chinese automaker Chery for export to
the United States, but called off his plans as a result of production issues in China. Coda, which began production of
an all-electric vehicle in California with many components sourced in China, ceased production and filed for Chapter
11 bankruptcy protection on May 1, 2013; see "Company will leave autos, focus on energy," Reuters, May 1, 2013. [Back]

28. Based on volume of exports. 2011 data sourced from U.S. International Trade Administration, Growth
Trends in U.S. Vehicle Exports, Washington, DC, April 2012. The 2012 data were developed for CRS and have not
been released publicly by ITA at this time. [Back]

35. Terence Stewart, Elizabeth Drake, and Philip Butler, China's Support Programs for Automobiles and
Auto Parts Under the 12th Five Year Plan, Law Offices of Stewart and Stewart, Washington, DC, January 2012, p.
80. The analysis does not specify whether foreign-based automakers such as Honda, Toyota, or Volkswagen
imported parts directly from China for assembly into U.S. vehicles. As AMS does not require importers to disclose
their identities, an evaluation of parts imported by the Detroit 3 could be made only on a limited basis. [Back]

42. Currently, 40% of TRW's revenue comes from Europe, 35% from North America, 15% from China, and
10% from other developing markets. It makes brakes, airbags, steering systems, and other vehicle parts. Yang Jian,
"TRW CEO: China May Surpass U.S. as Top Market for Supplier by 2020," Automotive News China, May 3, 2013. [Back]

46. As part of the bankruptcy proceeding, A123 Systems changed its name to B456 Systems in March 2013. [Back]

47. The division of A123 Systems that has contracts with the U.S. Defense and Energy Departments was sold
to a U.S. company, Navitas Systems. See New York Times, "Chinese Firm Wins Bid for Auto Battery Maker,"
December 9, 2012. CFIUS is an inter-agency committee of the U.S. government that is authorized to review foreign
investment transactions that could result in control of a U.S. business by a foreign entity, in order to determine the
effect of such transactions on the national security of the United States. CFIUS is chaired by the Secretary of the
Treasury. [Back]

50. Terence Stewart, Elizabeth Drake, and Philip Butler, China's Support Programs for Automobiles and
Auto Parts Under the 12th Five Year Plan, Law Offices of Stewart and Stewart, Washington, DC, January 2012, p.
27. [Back]

56. Terence Stewart, Elizabeth Drake, and Philip Butler, China's Support Programs for Automobiles and
Auto Parts Under the 12th Five Year Plan, Law Offices of Stewart and Stewart, Washington, DC, January 2012, p.
7. [Back]

58. Terence Stewart, Elizabeth Drake, and Philip Butler, China's Support Programs for Automobiles and
Auto Parts Under the 12th Five Year Plan, Law Offices of Stewart and Stewart, Washington, DC, January 2012, pp.
43-44. [Back]

64. Vehicles are assembled in Mexico by U.S., Japanese, Korean, and European manufacturers. More than
80% of Mexican auto production is exported, with about 90% of the exports sold in the United States. Enrique
Dussel Peters, "The Auto Parts-Automotive Chain in Mexico and China: Co-operation Potential?," China Quarterly,
Number 209, March 2012, pp. 94-95, http://www.dusselpeters.com/55.pdf. [Back]

65. Ibid. According to this source, the United States accounted for 53% of the parts imported into Mexico in
2010, down from more than 70% in 2000. Germany and Japan were the second- and third-largest auto parts
exporters to Mexico in 2010; China was fourth-largest. Vehicles are assembled in Mexico by U.S., Japanese,
Korean, and European manufacturers. More than 80% of Mexican auto production is exported, with about 90% of
the exports sold in the United States. [Back]

71. A tariff rate quota is a quota system with a two-tiered tariff. Products that enter under the quota enter at a
lower tariff rate, with a higher (out-of-quota) tariff rate used for imports above the concessionary access level. [Back]

82. According to the U.S. Geological Survey (USGS), China is a major global producer and, in some cases, a
dominant producer of many raw and processed materials. For example, in 2010, China accounted for more than 80%
of global production of antimony, magnesium metal, rare earths, and tungsten. It also accounted for between 50%
and 80% of global production of more than a dozen other materials. China was the largest global producer of 37 out
of the 80 mineral commodities tracked by USGS. Statement of W. David Menzie, Chief of Global Minerals
Analysis, National Minerals Information Center, USGS, before the U.S.-China Economic and Security Review
Commission hearing on "China's Global Quest for Resources and Implications for the United States," January 26,
2012. [Back]

83. According to the WTO, raw materials affected by Chinese restraints include sawn timber, coke, oil, rare
earth elements, antimony and its products, tungsten and its products, zinc ore, tin and its products, silver, indium,
molybdenum, phosphate rocks, carbide, fluorspar, talc, magnesium, and bauxite. China also imposes export
restraints on a number of agricultural products. [Back]

84. Neodymium is the rare earth element used in electric motor magnets. [Back]

85. Since the Chinese embargo and imposition of export duties, efforts have intensified to find other sites
outside of China that could produce rare earths, including in the United States. In addition, Toyota and other
automakers have sought to find ways around using some of the rare earths in hybrid vehicles. [Back]

87. For a further discussion of rare earths, see CRS Report R42510, China's Rare Earth Industry and Export
Regime: Economic and Trade Implications for the United States, by Wayne M. Morrison and Rachel Tang. [Back]

88. However, prices of U.S. imports of Chinese rare earths have fallen sharply, declining from $158,389 per
metric ton in September 2011 to $15,739 in March 2013, caused in part by a relaxation of Chinese restrictions on
output, increasing smuggling, and slumping foreign demand. Rare earth pricing data are from USITC Dataweb. [Back]

90. During his State of the Union Address on January 24, 2012, President Obama announced that he would
create a new federal trade enforcement unit "charged with investigating unfair trade practices in countries like
China." On February 28, 2012, President Obama issued an executive order establishing an Interagency Trade
Enforcement Center within USTR to more effectively address trade enforcement issues. [Back]

98. USTR, 2011 Report to Congress on China's WTO Compliance, December 2011, p. 2. Many of the
industrial policies that China has implemented or formulated since 2006 appear to stem largely from a
comprehensive document issued by the State Council (the highest executive organ of state power) in 1996 titled the
National Medium- and Long-Term Program for Science and Technology Development (2006-2020). The plan, often
referred to as the MLP, appears to represent an ambitious initiative to modernize the structure of China's economy
by transforming it from a global center of low-tech manufacturing to a major center of innovation by 2020 and a
global innovation leader by 2050. One of the central goals is to lessen the country's dependence on foreign
intellectual property through government support to develop indigenous intellectual property. [Back]

This document has been published on 22May13 by the Equipo Nizkor and Derechos Human Rights. In accordance with
Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a
prior interest in receiving the included information for research and educational
purposes.